|STOXX Launches Factor-Based Minimum Variance Indices|
|June 22, 2012|
Index provider STOXX has launched a new range of minimum variance equity indices. These are designed to reduce overall portfolio volatility by applying a mathematical “optimisation” to a portfolio of stocks, typically using those shares’ historical volatilities and intra-stock correlations as the inputs.
In the case of STOXX’s new minimum variance index family, which has been branded “STOXX+”, the portfolio optimisation is based on a factor model developed jointly with Axioma, a firm specialising in risk management tools.
STOXX already offers minimum variance indices under a different brand, “iSTOXX”: these follow the traditional approach of using historical data as the basis for the optimisation.
STOXX is offering two versions of the new minimum variance indices, one constrained and one unconstrained.
In the constrained versions of the indices, the exposure to the Axioma factors is limited to one quarter of the standard deviation of the underlying index’s exposure, with the exception of size and risk, which are not used as constraints. Further constraints include full investability, component weight capping, diversification, turnover, and capping of the exposure to currencies and to industry exposure. The unconstrained versions of the indices are not subject to any factor, currency or industry exposure requirements.
The constrained versions of the STOXX+ minimum variance indices are rebalanced quarterly and the unconstrained versions monthly. The indices are calculated in price, net and gross return versions and are available in euro and US dollar, as well as Canadian dollar for the Canada indices. Price return versions are calculated in real-time, while net and gross return versions are available at the end of each trading day.
The indices are offered on 14 global, regional and country equity markets.